Acquisition of Loop Mobile is credit positive for Bharti Airtel: Moody's

• In the first telecom merger and acquisition (M&A) deal since the government finalised its policy on the same, Bharti Airtel BSE -0.59 % earlier this week signed an agreement with Mumbai-based Loop Mobile for about Rs 700 crore. 
• It is credit positive for the telecom operator. 
• Moody's Investors Service says Bharti Airtel Limited's (Baa3 stable) announced acquisition of Loop Mobile (unrated, "Loop") is credit positive. 
• "The proposed acquisition of Loop is credit positive, not only will it add 3 million subscribers to Bharti's existing subscriber base of 4 million in Mumbai, catapulting it to number one position in terms of customers in this key market ahead of Vodafone India, but will also be EBITDA accretive for Bharti," says Laura Acres, Moody's Senior Vice President. 
• Loop has a higher proportion of remunerative post-paid subscribers and tower rights in key areas, which should improve the network coverage and overall blended average revenue per user (ARPU) for Bharti Airtel. 
• The acquisition, which remains subject to government approval, also represents one of the first steps toward industry consolidation in a highly competitive market. India currently has some 12 operators across 22 circles. 
• Moody's generally views markets with 3-4 national mobile operators as being more efficient. Therefore, the acquisition and the industry shift it signals are both positive developments.
• The announcement of the acquisition follows the recent conclusion of spectrum auctions in India when Bharti won approximately 115 MHz (18MHz of 900 MHz spectrum and 97MHz of 1800 MHz spectrum) for a total cost of Rs 18,500 crore ($3.0 billion), which was slightly above our expectations, Moody's says. 
• Bharti Airtel bought 5 MHz of 900 MHz and 6 MHz of 1800 MHz in Mumbai for Rs 4,400 crore or $720mn. It is now buying Loop Mobile (subject to regulatory and statutory approvals).
• "This appears to be a good strategic move to better monetise its recent spectrum purchases in Mumbai. Loop has a market share of 10 per cent in Mumbai (number 6 operator) with ARPU of Rs 225 as compared Bharti's current ARPU of Rs 195," Nomura said in a report. 
• "The financial impact is unlikely to be material, but sentiment-wise this should be a positive we think, given that:                                                 1) consolidation is generally good for the industry and Bharti will be gaining a strong presence in a key market.and                                           2) it is good to see more capital being spent on the domestic business, rather than seeking external growth - there is still plenty of room for voice/data growth in India," added the report. 
• Nomura maintains 'buy' rating on Bharti Airtel with a target price of Rs 350.
• Although details of the deals are not available, Bharti Airtel has signed the agreement with Mumbai-based Loop Mobile for about Rs 700 crore which includes Rs 400 crore of debt in the books of Loop, Angel Broking said in a note. 
  This would involve acquisition of both the assets (tower, equipment's, fiber optic network etc) and customers of Loop, added the note.